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Bad debts in Vietnam's banking system were estimated at 3.59 percent in February. Photo: Ngoc Thang

Commercial banks in Vietnam are not allowed to expand their networks until they can keep bad debts under 3 percent of total outstanding loans, a new rule indicative of the government's increased resolve to address its toxic debt problem.

The deadline for banks to reduce their bad debts is October 1.

Lenders missing that deadline will not be licensed to add more branches or install new ATMs, the State Bank of Vietnam said in a statement on Wednesday.

It is unclear if the expansion restriction will be lifted next year.

Bad debts in Vietnam's banking system were estimated at 3.59 percent in February, slightly up from 3.25 percent in December last year.

The central bank has continuously affirmed its commitment to bring that level down to 3 percent by the end of the year.

In one of the bank's efforts, local lenders were ordered to sell their bad debts to its asset management company VAMC by September.

VAMC, which was established in July 2013, planned to buy around VND80 trillion ($3.6 billion) of bad debts from commercial lenders this year.

BIDV, the second-biggest partly private bank by assets, was asked to sell the largest amount, around VND8 trillion ($360.31 million), local media reported.